Overview

Essential Energy's cost allocation method (CAM) governs the manner in which Essential Energy is allowed to allocate costs to the services it provides. Allocation of costs between services is required to accurately represent costs incurred in providing the respective services. This prevents cross-subsidisation between distribution services and other services Essential Energy provides.

Our assessment of Essential Energy's CAM was assisted by advice from KPMG, which we engaged.

On 9 May 2014, the AER approved the revised CAM submitted by Essential Energy in accordance with chapter six of the National Electricity Rules. Its revised CAM replaces Essential Energy’s previous CAM approved by the AER in 2008. Essential Energy’s previous CAM was prepared and approved by the AER under transitional arrangements which expire at the end of the 2009-14 regulatory control period. Under those transitional arrangements, Essential Energy’s previous CAM reflected as much as practicable its CAM used to prepare its last regulatory proposal for the Independent Pricing and Regulatory Tribunal.

Essential Energy submitted its revised CAM for approval ahead of the upcoming regulatory control period, so its regulatory proposal for the new control period may be prepared accordingly. The CAM approved by the AER on 9 May 2014 is the first for Essential Energy prepared entirely in accordance with the National Electricity Rules’ cost allocation requirements.